LONDON Banks are failing to comply with global rules requiring them to peg bonuses to long-term company performance, the regulatory task force of the Group of 20 leading economies said on Wednesday.
The G20 approved principles in the aftermath of the 2007-09 financial crisis to stop bonuses from encouraging excessive risk taking.
They force banks to limit how much of a bonus can be paid up front in cash, with the rest deferred and paid in shares that can only be sold over time.
In a report for a summit of G20 leaders next week, the Financial Stability Board said implementation was improving but some areas needed tightening up, in particular matching bonuses to performance.
"The alignment of compensation with performance is highlighted as a continuing challenge for institutions, since they do not want to lose key personnel and struggle to align compensation payouts with the financial performance of the company," the FSB said.
Bank shares have been hammered in recent years as some investors shun a sector facing uncertainties from the euro zone debt crisis and falling profitability as new regulation bites.
There is widespread public anger in Europe and the United States at high levels of pay for top bankers at a time when a number of institutions survive only due to state aid after over-extending themselves with rash investments.
Top shareholders have also put pressure on banks like Barclays (BARC.L) to trim pay packages.
Germany told the FSB that the malus principle, whereby the deferred portion of a bonus should be recovered if performance turns out to be poor, is being triggered in too few cases.
On Wednesday JPMorgan (JPM.N) chief executive Jamie Dimon told a U.S. Senate panel that pay clawbacks for employees involved in a $2 billion trading loss were likely.
The FSB said Indonesia and Russia has yet to issue final rules to implement its principles, while Argentina, Brazil, China, India and Turkey have chosen not to implement one or more of the rules.
There was also inconsistency among G20 countries over which bank officials and types of institutions must comply with the rules.
Most FSB members have not seen any unintended consequences although Spain has seen some banks bump up fixed pay to get round the bonus curbs, the FSB said.
(Reporting by Huw Jones; Editing by Anthony Barker)